Green Mountain looks beyond coffeeJuly 11, 2013: 1:00 PM ET
Can the company best known for single-serve coffee pods become a leading purveyor of other beverages?
By Beth Kowitt, writer
FORTUNE -- Brian Kelley left a great gig at Coca-Cola Co. -- he had just been tapped as the next president and chief operating office of refreshments -- to run Green Mountain Coffee Roasters, a relatively tiny java maker based in Waterbury, Vt.
Green Mountain (GMCR) is about one-twelfth the size of Coca-Cola (KO) by revenue. When Kelley joined, the company also had a series of issues trailing behind it, among them a short on the stock from Greenlight Capital's David Einhorn and an ongoing SEC investigation into its accounting practices that began in 2010.
But Kelley liked that, relative to Coca-Cola, Green Mountain was a company early in its life cycle with room to grow. "This is a new technology and new proposition for consumers," he says. "It's still in its infancy."
While Green Mountain Coffee had been around since the early 1980s, it wasn't until 2006 that the coffee roaster acquired Keurig, the beverage system best known for its single-serve brewing.
"It's really only the last six years that these two have co-existed and integrated, and that's where all the magic has been made," Kelley says. The stock has returned more than 85% since he became CEO in December last year.
In addition to its Green Mountain line, the company works with 30 different brands such as Celestial Seasonings, Swiss Miss, and Caribou Coffee to make their products available to consumers for the Keurig system.
Only 13% of households have Keurig brewers, and the company has yet to expand beyond North America. Kelley also sees growth beyond geography. The company announced Thursday a new brewing system, the BOLT, which brews a 64-ounce pot of coffee in about two minutes -- ideal for serving locations like offices and convenience stores.
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But the future of Green Mountain extends beyond coffee. In an interview with Fortune, Kelley laid out the company's plans to expand into an all-encompassing beverage business. The following are edited excerpts:
Are your partners concerned that they'll cannibalize their business when they become part of the Keurig system? For example, why would I go to Starbucks (SBUX) when I could use my Keurig to brew Starbucks coffee at home for a fraction of the cost?
Two-thirds of beverages are consumed at home, with one-third consumed away from home. We don't see that changing. Much of the consumption at home is water, and now you're giving them a product that they can get as easily as they get a glass of water. All they do is just pop in a pod and put a glass under it.
You're clearly not just talking about coffee, and we've seen that in some of your partnerships such as the recent deal with Snapple. Is that how you plan to take share of beverages consumed at home?
Today we have coffee, tea, and hot cocoa, and coffee and tea that are cold. You can brew them over ice, and we have some fruit drinks. Over time we have a simple mission, which is to get a brewer in every home and in every place of work, and then have a beverage for every occasion. We know that there's opportunity for us to use the Keurig brand name and platform to be able to offer more beverages than what we offer today.
Couldn't the brands you partner with start their own systems? Starbucks now has its Verismo machine. Does that worry you?
It's all about delivering better value and having a bigger installed base. There were early on some brands that thought they could go on their own and anybody certainly can, but it's not a simple proposition. You have to have a brand name, appliance expertise, have to get them sold in retailers, and get them installed in consumer homes.
Some consumers are concerned that using and throwing away a pod after every use is wasteful. What progress are you making there?
There's a number of ways we look at sustainability. We look at the water usage we have in our system, energy used, and the recycling waste. On the recycling piece, we are committed to having a recyclable K-Cup [used in the original Keurig]. We don't have it today and we know that. Our new cup is recyclable, and future cups will be recyclable, but we are working to have recyclable K-cups.
What are the big trends in beverages that you're watching closely?
There are three big trends. The first is great taste and healthy. The second is fusions, meaning teas and juices, coffees and dairy, carbonating things that weren't carbonated before. It's a fusion world, a blending world. Energy itself is a big category, and consumers expect to get energy that's good for them. There are a couple of others like natural, fresh, and local.
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How are you playing off of those trends?
You'll see us adding more and more local brands into the system like Timothy's [which is a Canadian coffee chain]. You'll see us doing more high-end craft and artisanal brands. Also our beverage system taps into fresh in a really powerful way. You are literally brewing it and drinking it in 30 seconds. It's the freshest beverage you can get.
You're big at breakfast. How are you going to push beyond the morning?
Ninety percent of our business today is coffee. Think about how the beverage business works. Most beverages are consumed with meals -- breakfast, lunch, and dinner. Then mid-morning, a pick-me-up beverage in the afternoon, a late afternoon beverage, a before bedtime beverage. We started in the coffee business, which tends to lend itself to the morning. You'll see us expand into more of a total beverage business as we grow.